2023 (3) TMI 194 - AT - Income Tax

Revision u/s 263 by CIT - As per CIT AO has not verified the cash deposit during the demonetization period nor sought any explanation while finalising the assessment u/s 143(3) - HELD THAT - We are of the considered view that the AO had made enquiries into the aspect of cash deposit in the bank accounts of the assessee during demonetization period, and after due consideration of the response filed by the assessee, accepted the contention of the assessee and did not make any addition to the returned income. Accordingly, in our view, this is not a case where no enquiry has been made by the assessee officer during the course of assessment proceedings. In our view, Pr. CIT has incorrectly observed in the instant facts that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, Principal CIT cannot in 263 proceedings set aside an assessment order merely because he has different opinion in the matter. In our view, s 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the Assessing Officer who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the Principal CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. Now on the issue that the Ld. AO passed a cryptic order and did not discuss in detail regarding assessee s submissions on various queries raised vide the various notices, in our view it is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed its submissions, then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee, it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. The above proposition has been upheld in the case of CIT v. Reliance Communication 2016 (4) TMI 173 - BOMBAY HIGH COURT , Smt. Anupama Bharat Gupta 2021 (4) TMI 1000 - ITAT AHMEDABAD , Goyal Private Family Specific Trust 1987 (10) TMI 43 - ALLAHABAD HIGH COURT , CIT v. Mahendra Kumar Bansal 2007 (7) TMI 149 - HIGH COURT, ALLAHABAD - We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. The Grounds of appeal raised by the assessee are thus allowed.

Summary

Issues Involved:
1. Legality of the Revision Order under section 263 of the Income Tax Act.
2. Adequacy of inquiries/verification conducted by the Assessing Officer (AO).
3. Basis of initiating proceedings under section 263 by the Principal Commissioner of Income Tax (PCIT).
4. Principles of natural justice in the context of the PCIT's order.
5. Applicability of judicial precedents regarding the scope of section 263 proceedings.

Detailed Analysis:

1. Legality of the Revision Order under section 263 of the Income Tax Act:
The assessee challenged the PCIT's revision order under section 263, arguing it was "bad in law and contrary to the facts of the case." The PCIT had issued the revision order on the grounds that the AO did not verify the cash deposits made during the demonetization period and did not seek any explanation while finalizing the assessment under section 143(3) of the Act.

2. Adequacy of inquiries/verification conducted by the AO:
The counsel for the assessee argued that the AO had indeed conducted inquiries and verification regarding the cash deposits during the demonetization period. The AO had issued a notice under section 142(1) of the Act, calling for various details, which the assessee provided, including bank certificates, bank statements, cash book, and VAT returns. The Tribunal noted that the AO had made inquiries and accepted the assessee's explanations, indicating that the AO's order was not erroneous or prejudicial to the interests of the revenue.

3. Basis of initiating proceedings under section 263 by the PCIT:
The PCIT initiated proceedings under section 263 based on the suspicion that the AO had not conducted adequate inquiries. However, the Tribunal emphasized that the adequacy of an inquiry is subjective and depends on the AO's discretion. The Tribunal cited various judicial precedents, including the Delhi High Court's judgment in CIT Vs. Sunbeam Auto and the Bombay High Court's judgment in Gabriel India Ltd., to distinguish between "lack of inquiry" and "inadequate inquiry." It concluded that the PCIT cannot impose his own understanding of the extent of inquiry required.

4. Principles of natural justice in the context of the PCIT's order:
The assessee argued that the PCIT's order was "illegal, unjustified, and against the principles of natural justice." The Tribunal agreed, noting that the AO had made due inquiries and the PCIT's revisionary powers under section 263 do not extend to substituting the AO's judgment with his own unless the AO's decision is wholly erroneous.

5. Applicability of judicial precedents regarding the scope of section 263 proceedings:
The Tribunal referred to multiple judicial precedents to support its decision. These included:
- Delhi High Court in CIT Vs. Sunbeam Auto: Emphasized the distinction between lack of inquiry and inadequate inquiry.
- Bombay High Court in Gabriel India Ltd.: Stated that the initiation of proceedings by the Commissioner must be based on materials on record.
- Supreme Court in Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.: Held that the AO's plausible view after detailed inquiries cannot be considered erroneous or prejudicial to the revenue.
- Supreme Court in Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates: Affirmed that detailed inquiries by the AO negate the need for revision under section 263.
- Supreme Court in Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd: Confirmed that the AO's plausible view in law cannot be revised under section 263.
- Supreme Court in Principal Commissioner of Income-tax--8 Mumbai v. Sumatichand Tolamal Gouti: Upheld that detailed inquiries by the AO justify the dismissal of the revision order.

The Tribunal concluded that the AO had made adequate inquiries and the PCIT's order under section 263 was not justified. Therefore, the appeal of the assessee was allowed, and the revision order was set aside.

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the PCIT's revision order under section 263. It held that the AO had conducted adequate inquiries regarding the cash deposits during the demonetization period, and the PCIT's order was not justified. The decision was based on various judicial precedents that emphasize the distinction between lack of inquiry and inadequate inquiry and the limitations of the PCIT's revisionary powers under section 263.